Try to remember. Try to remember those days when there was actual enthusiasm when people talked about stocks. The Irrational Exuberance era was appropriately named, but its negative over-reaction hasn’t worn the title it deserves: Irrational Revulsion. For the last few years, it has been impolite to mention stocks in casual conversations. The markets, which are by definition the large companies, are recovering. The stocks I’m more familiar with are from smaller companies that have languished, but that may be changing. That’s good news for my portfolio, but it’s also good news for the country because small companies have been the engine of growth. Witness three companies that may persevere: Dendreon (DNDN), AMSC (previously known as American Superconductor but now just AMSC like its symbol), and Real Goods Solar (RSOL). Sudden news may not be as important as sudden recognition of persistent stories.

It would be handy to point back to a stable time in the stock market when theoretical models closely described reality, when stocks were priced based on the value of the company and any variation and deviation in price was part of a free market discussion argued with real money. The last time we had anything like that was back in the era of Pres. Bush, Sr. and Pres. Clinton. Prior to that, the nation was recovering from double digit inflation and interest rates. (Great deals on mortgages as low as 12%! Lock in now!) Then came the Internet Bubble and Irrational Exuberance, which probably would’ve resolved itself in a few years, but 9/11 hit and our fears and anxieties amplified a downturn. The recovery eventually began, until someone went too far, violated assumptions, and nearly imploded the world economy. No wonder few people want to talk about stocks or investing. People in their twenties probably have no experience in “rational” markets.

One sign that markets are irrational is when stock prices are not affected by company news. If the stock is based on a company’s value, and the news affects that value, then the stock should change proportionally. It isn’t straight math because there is plenty to argue about in terms of risks and potentials. Five years ago, DNDN, AMSC, and RSOL were much less mature companies. Dendreon had yet to achieve FDA approval for its revolutionary cancer treatment (Provenge). AMSC was still called American Superconductor because they were developing superconducting power cables, but hadn’t figured out the manufacturing process. Real Goods Solar wasn’t even public yet, but was about to be spun off from Gaiam (GAIA) and launched into the growing solar power industry. Since then, Dendreon’s treatment has worked better than expected. AMSC is producing cable and has expanded into wind power and power integration (Tres Amigas). Real Goods Solar has doubled revenues and continues to grow. Yet, DNDN, AMSC, and RSOL are far below their peak prices or even their prices from back then.

And yet, the stocks are recovering. I think they are worth much more than today’s valuations, and their interim performance suggests that possibility, but the relief is that they are recovering. Since the election, or New Years, or the Inauguration, or the failed Mayan Apocalypse, stocks in the small companies that I follow are rising. DNDN and AMSC are up nearly 50%. RSOL has more than quintupled. (If I type in sextupled will the spam bots mark it as offensive? And if they do, is that because of allusions to procreation or an irrational revulsion towards enthusiasm for stocks?)

Hidden within this discussion is a consequence of arithmetic. Companies are frequently measured by their market caps (the price of the stock multiplied by the number of shares available.) So, if everyone decides to sell a stock and plummet its price, the company can drop from large cap to micro cap merely from the (dis)wisdom of crowds regardless of its value. Some companies are not affected because they have existing product lines, sufficient cash flow, no debt, and competent management. If they persevere they will survive. Other companies are more strongly affected, and what affects them can affect us. Dendreon’s curtailment of a rapid expansion into treating other cancers was arguably required because of an irrational reaction to growth that was lower than expected. In any case, the company may be able to continue adding value that isn’t recognized immediately.

My investing history extends back to the Carter era. Sounds old, doesn’t it? But I was one of those kids who started investing a few hundred dollars before I got my first “real” job. I’m also a fan of history and have learned that every era makes fun of the previous era’s obliviousness. Of course the world isn’t flat. Of course the Earth goes around the Sun. Of course those points of light are other planets, stars, solar systems, galaxies, universes, ad infinitum. Within investing, the lesson I’ve learned is that if an investor and the companies can persevere, stock price eventually reflects company value regardless of the investment community’s interim derision. The market realization of a proper valuation is as abrupt as the depths or heights of the market’s earlier over-reaction. We’ve experienced years of doubt, dismay, and derogatory comments. If our financial system survives (a subject of active debate), then the market re-evaluation of hundreds of overlooked companies may seem extraordinary even though it may only be a return to ordinary.

My perseverance has been tested. As DNDN dropped and Dendreon succeeded, I had to sell to pay my bills. I ran out of DNDN before my other stocks recovered. My mortgage company is not happy about that. I have backup plans layered on backup plans and still can’t pay my bills. Three years ago my portfolio was much more diversified. What remains is a small quiver of small cap stocks representing companies that are making progress, though less than I expected, but with reactions that are greater than anticipated. AMSC announced a relatively large order a few days ago. RSOL announced a collaboration too. Describing the resultant stock price rise to fellow investors was met with disbelief. We’ve become too familiar with small expectations. As I type, RSOL is up about 70% for the day. Unbelievable. And yet, for RSOL to return to it’s IPO price when it was making less money and solar wasn’t in as much demand, RSOL will have to do that two or three more times. (Just checked again as I looked for the IPO price. RSOL is up 78%.)

Even with such recoveries, my losses are so great that it will take weeks of such performance for my portfolio to relax me, and a longer run for complete recovery; but good things can happen, for me, for the companies, for the nation, for us.

Of course, for those who follow such things, maybe something as small and grand as MicroVision reaching its long-anticipated impressive profits will rocket MVIS within a time that pleases me, my portfolio, my mortgage company without testing my perseverance much more. That would be a marvelous recovery.